This post was most recently updated on April 25th, 2020
Be it stocks or international currency, an ‘exchange’ has always been associated with any commercial entity that is susceptible to fluctuations in value. The most expected and latest addition to this bandwagon of exchanges is the cryptocurrency exchange.
The growth of cryptocurrency exchanges is directly proportional to the increased adoption of cryptocurrency, and the number of cryptocurrencies is evolving on a daily basis. Facilitating a systemized barter between different cryptocurrencies is a promising avenue for profits, and cryptocurrency exchange owners are capitalizing on this new platform.
The surprise factor is that these exchanges are making a profit in the order of $1 million even when cryptocurrency and blockchain technology are still growing out of their infancy.
How is it that these cryptocurrency exchanges make money? What is it that fuels the growing craze for cryptocurrency exchange development? Let us read on to find out!
The revenue streams for cryptocurrency exchanges are far from monotonous. There are a lot of methods using which cryptocurrency exchange owners can earn revenue.
Listing Initial Exchange Offerings
Initial coin offerings or ICOs were seen as one of the first major manifestations of confluence between blockchain and investments. However, owing to the dubious reputation and scabby nature of ICOs, they soon disappeared into oblivion. Instead of going through the hassle of marketing the ICO and having them listed on the exchange with an element of uncertainty, a lot of crypto projects and companies have resorted to listing their project tokens on already popular exchange platforms.
This process ensures that no time is wasted in building credibility for the token to assess the credibility of the exchange trickles down to the token itself! This saves quite a lot of time in launching a stable product. However, there is a price to be paid to the exchange for getting the token listed, and this translates into good revenue for the exchange.
An exchange, on average, charges between 5 and 10 bitcoins for listing. Reputed exchanges are known to charge in the range of $1 million to $2 million per listing.
Deposit and Withdrawal Fees
On the surface, it might seem like the concept of deposit and withdrawal fees goes against the basic principle of what cryptocurrency is all about. However, this charge is considerably less compared to the fees charged by fiat exchange platforms like Simplex. Usually, the conversion fees between crypto and fiat, either way, is about 0.01% of the conversion value.
While the small percentage might not contribute a lot to revenue, it does make a considerable impact when it comes to trading volume.
Stacking schemes can be considered an apt counterpart to the concept of fixed deposits when it comes to traditional banking. The funds of traders are locked up in the exchange, and the exchange periodically pays the traders some interest on the amount. The interest usually varies between 1% and 10%.
On the surface, it might seem like exchange owners do not benefit from this. However, when they have access to huge sums of cryptocurrency, they can use it to diversify their investment and create more revenue streams. For example, this deposit might help cover their running costs, so they can get more companies to list their crypto projects in their exchange.
We have already discussed that the entire realm of crypto and blockchain is in its infancy. There are not many people who can be considered experts in this field, especially when it comes to the knowledge of investing in digital currencies. To enhance the volume of investors, some crypto exchanges have started a parallel service of providing expert consultation to investors, so they can diversify their portfolio of investors and earn a better profit.
Yes, we understand that most of you might have waited for this topic! Commissions form the biggest chunk of revenue when it comes to cryptocurrency exchanges. Crypto traders take certain transaction fees or commissions to validate their transactions. The transaction fee varies between 1% and 3% of the total trading volume. Coinbase charges 2.99% as a trading fee, and in stark contrast, Binance charges 0.1% as its transaction commission.
What is interesting to note here is that even though the crypto market did not grow well in the previous year, cryptocurrency exchanges were still able to make big profits. BKEX, with a $46.37 billion market value, is the largest cryptocurrency exchange of the previous year!
Launching a Crypto Token
It might not be an exaggeration to say that the profit of the cryptocurrency exchange is proportional to the number of users. Therefore, exchanges launch their own crypto tokens and give a lot of lucrative offers, luring users into their exchange.
Binance launched its own Binance Coin (BNB), and it offered traders an additional commission of 50% on the training fees while trading that coin. This not only led to the coin skyrocketing in its value but also helped a lot of users to make use of this opportunity to get into the business of crypto trading through Binance.
Creating your own cryptocurrency exchange
From the above lines, it is quite evident that currency trading is quite a lucrative business opportunity. However, there are a lot of complications and intricacies involved in creating perfect cryptocurrency exchange solutions.
As a workaround, you can consider using white label cryptocurrency exchange platforms. A lot of companies provide extremely customizable cryptocurrency exchange solutions that have all the basic functionalities of the exchange built within. At the same time, they are flexible enough to accommodate changes in terms of functionalities and UI/UX, so it reflects your brand language and philosophy.
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